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Assignment	2	Marks	3.75 (10 Points)
Course Title	Principles of Accounting	Code	ACCT 101
Uploading	End week 5	Submission	End week 6
Date	Sat 06/10/2018	Dates	Sat 13/10/2018

Instructions:

· The answers must be in English.

· Students must include their details (Name, Student ID, CRN, Date of submission)

· Answer the ALL questions.

· MUST write the questions in the answer papers .

· Assignments should be submitted in MS Word format

· Font should be Times New Roman with 14 points.

· You are required to work in this assignment individually.

· You should submit the assignment via the Blackboard System.

· Students, who submit assignments after deadline, will get ZERO.

· If you engaged in plagiarism, you will get ZERO marks in the assignment.

Q1.XYZ Company uses a periodic inventory system. The beginning balance of inventory and the purchases made by XYZ during the month of July are given below:

Date	Description	Units	Unit cost	Total cost
July 01	Beginning inventory	500	$20	$10,000
July 18	Inventory purchased	800	$24	$19,200
July 25	Inventory purchased	700	$26	$18,200

	Total	2,000		$47,400

The XYZ Company sold 1,400 units during the month of July.

Required: Compute inventory on 31st July and cost of goods sold for the month of July using FIFO inventory costing method: (3 marks)

Answer to Q1:

· COGS =

500 * $20 = 10,000 + 800 * $24 = 19,200 + 100 * $26 = 2,600 = 31,800

· Inventory on 31st July = Beginning inventory + Purchases – COGS =

= 10,000 + 19,200 + 18,200 – 31,800 = 15,600

Q2. ALPHA Company reported the following year-end information:

Cash	$ 52,000
Short-term investments	12,000
Accounts receivable	54,000
Inventory	325,000
Prepaid expenses	17,500
Accounts payable	106,500
Other current payables	25,000

Instructions: 1- Explain the purpose of the acid-test ratio. (1 mark) 2- Calculate the acid-test ratio for ALPHA Company. (2 marks)

Answer to Q2:

1-The purpose of the acid-test ratio:-

· The acid-test ratio is a common ratio that is used to determine the liquidity of a company. In other words, this ratio determines if the company has enough liquid assets to pay current liabilities. The ratio is calculated as quick assets divided by current liabilities.

· Quick assets include cash, short-term investments, and receivables. A common rule of thumb is for the acid-test ratio to be at least one point zero, but this can vary from industry to industry.

2-Acid-test: -

= Cash + S/T investments + receivables

Current liabilities

= (52,000 + 12,000 + 54,000) / (106,500 + 25,000) = 118,000 / 131,500 = 0.89

Q3. Maia's Bike Shop uses the periodic inventory system and had the following transactions during the month of May:

May 3	Sold merchandise to a customer on credit for $600, terms 2/10, n/30. The cost of the merchandise sold was $350.
May 4	Sold merchandise to a customer for cash of $425. The cost of the merchandise was $250.
May 6	Sold merchandise to a customer on credit for $1,300, term 2/10, n/30. The cost of the merchandise sold was $750.
May 8	The customer from May 3 returned merchandise with a selling price of $100. The cost of merchandise returned was $55.
May 15	The customer from May 6 paid the full amount due, less any appropriate discounts earned.
May 31	The customer from May 3 paid the full amount due, less any appropriate discounts earned.

Instructions:

Prepare the required journal entries that Maia's Bike Shop must make to record these transactions. (3 marks)

Answer to Q3:

D	Debit Accounts	Amount	Credit Accounts	Amount
3	Accounts Receivable	600
			Sales	600
	cost of goods sold	350
			Merchandise inventory	350

4	Cash	425
			Sales	425
	cost of goods sold	250
			Merchandise inventory	250

6	Accounts Receivable	1,300
			Sales	1,300
	cost of goods sold	750
			Merchandise inventory	750

8	Sales Returns and Allowances	100
			Accounts Receivable	100
	Merchandise inventory	55
			cost of goods sold	55

15	Cash	1,274
	Sales discount	26
			Accounts Receivable	1,300

31	Cash	500
			Accounts Receivable	500

Q.4 What does FOB stand for? Differentiate between FOB shipping point (or FOB factory) and FOB destination? (1 mark)

Answer to Q4:

· FOB stands for free on board

· Differentiate between FOB shipping point (or FOB factory) and FOB destination:-

· Free on board shipping point means that ownership transfers from the seller to the buyer when the seller provides the goods to the carrier. It also means that buyer will pay the transportation cost.

· FOB destination means that ownership transfers from the seller to the buyer when the buyer receives the goods. It also means that seller will pay the transportation cost.

· So, if goods are shipped FOB shipping point, then the buyer owns the goods in transit and will pay the transportation costs. In this case, the transportation cost will be added to the merchandise inventory account.